May 30, 2019

Examining the impact of Brexit on public procurement and public contracts

The UK’s proposed withdrawal from the institutions of the EU has now been ‘flexibly’ delayed up until 31 October 2019. Talks continue between the UK government and other political parties to try to find a compromise on a withdrawal agreement and future UK-EU relations. This article considers the impact of Brexit on public procurement and public contracts.

What impact does Brexit have on the key EU derived domestic regulations implementing the public procurement rules in the UK?

Public procurement regulation is devolved such that there are differing rules for Scotland from England, Wales and Northern Ireland. The impact on public procurement will depend on the type of Brexit which occurs. A Brexit which sees the UK, for example, joining the European Economic Area or the European Free Trade Association would likely see the UK be required to comply with existing and future EU legislation in the field of public procurement.

In the short term, the UK government has confirmed ‘business as usual’ in relation to public procurement. If the UK’s withdrawal from the EU is cancelled or delayed, the current regime will of course continue to apply. If the UK leaves the EU under some form of managed withdrawal agreement, such an agreement will contain provisions dealing with public procurement. The current draft (Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union (at Title VIII)) confirms that the existing EU rules will apply until the end of any transition period, and to any procurement process started during the transition period.

In the event of a so-called ‘hard’ Brexit, where the UK leaves all of the institutions of the EU without a managed withdrawal agreement, the UK has put in place amendment regulations which seek to ensure continuity of the existing legislative framework. The impact of these amendment regulations is set out below.

What is the key Brexit-related legislation impacting the procurement regime and what practical changes (if any) does it introduce? Is anything missing?

The key Brexit-related procurement legislation includes:

  • Public Procurement (Amendment etc) (EU Exit) Regulations 2019, SI 2019/560
  • Public Procurement (Amendment etc) (EU Exit) (No 2) Regulations 2019, SI 2019/623
  • Public Procurement etc (Scotland) (Amendment) (EU Exit) Regulations 2019, SSI 2019/112
  • Public Procurement etc (Scotland) (Amendment) (EU Exit) Amendment Regulations 2019, SSI 2019/114
  • Defence and Security Public Contracts (Amendment) (EU Exit) Regulations 2019, SI 2019/697
  • UK Statistics (Amendment etc) (EU Exit) Regulations 2019, SI 2019/489

The amendment regulations seek to ensure certainty in the event of a ‘hard’ Brexit. The key operative provisions in SI 2019/560 and SI 2019/623 are to:

  • replace references in the Public Contracts Regulations 2015, SI 2015/102 (PCR 2015) to the Official Journal of the European Union (OJEU) publication to a new UK e-portal system—a trial of the system is currently underway
  • removal of references to the EU from PCR 2015
  • the right for the relevant Secretary of State to set procurement thresholds
  • a new provision to entitle the UK to withhold information which it considers contrary to the essential interests of its security in public procurement activity
  • 18 months after the exit day, further provisions would amend the regulations further in respect of:
    • conditions relating to the government Procurement Agreement
    • life-cycle costing
    • duties owed to economic operators from certain other states

What is the government plan for implementation of procurement legislation on e-signatures in light of Brexit?

PCR 2015, reg 22 deals with electronic signatures. Contracting authorities must allow electronic submission of tenders and requests to participate, including encryption and time-stamping. There are provisions which relate to advanced electronic signatures where higher levels of trust and validation are required in PCR 2015, reg 22(17)(c).

The amendment regulations make specific provision that a UK government minister may make new exceptions or change existing exceptions to the obligation to undertake electronic procurement, because of technological developments. The UK government has stated that it is committed to modernisation of public procurement techniques and the opportunities afforded, for example, by blockchain technology.

What are UK-wide common legislative frameworks and how do they relate to/impact UK public procurement law post-Brexit?

‘Common legislative frameworks’ are common frameworks between the government of the UK and each of the UK’s devolved administrations. These frameworks seek to establish a common policy in matters which are currently governed by EU law, but which are devolved to each administration—this includes public procurement law. 

For this reason, mirroring provisions to the ‘no deal’ EU Exit regulations have been put in place for Scotland. The UK government has recently (4 April 2019) published a revised assessment of all of the different areas of EU law that apply to or are affected by the competence of the devolved administrations—this work is continuing.

If the deal is approved—what are the specific provisions for public procurement under the transitional arrangements in the Withdrawal Agreement?

The specific provisions set out in the current draft Withdrawal Agreement on public procurement are set out in Title VIII of the current draft (Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community) dated 25 November 2018. This provides that the existing rules will apply to:

  • procurement procedures launched (as defined in the Withdrawal Agreement) by contracting authorities of the UK under those rules before the end of the transition period and not finalised (as defined in the Withdrawal Agreement) on the last day of the transition period 
  • framework agreements or dynamic purchasing systems (DPS) set up either before the withdrawal date or during the transition period, and any call off contracts awarded under any such frameworks or DPS arrangements

If the deal is approved—what does the implementation of the Withdrawal Agreement mean for the commencement above legislation?

If a Withdrawal Agreement based on the 25 November 2018 version is implemented, SI 2019/560 and other secondary legislation will not come into effect until at least the end of any transition period. It is possible that the changes will not come into force at all depending on policy decisions reached between the EU and the UK.

If no deal—no deal remains the legal default position, what are the key differences contracting authorities must be prepared for on exit day? Are there any grey areas?

In the event of a so-called ‘hard Brexit’, the Amendment Regulations will apply on exit day.

The main practical change will be that contract notices and other notices will not be sent to the OJEU.

The UK government has intimated that it is keen to maintain access to public procurement markets across the EU for UK contractors and that EU contractors should be able to continue to access UK opportunities. It is currently not clear what the UK government would choose in terms of a new public procurement regime. Possible options include:

  • maintain the current regime. This has the advantage of being known and understood by UK contracting authorities and contractors and would involve minimal change and disruption to public sector supply chains in the short term. It is also possible, depending on the terms of any exit, that the EU seeks to require the UK to maintain the existing regime as a transitional step until new arrangements are agreed or as a requirement of any future co-operation arrangement. The EU has required compliance from other non-EU Member States in relation to procurement, for example in the Ukraine/EU collaboration agreement
  • amend the rules to simplify and seek to speed up procurement. This could involve merging the different rules for public contracts, concessions and utilities into one set of rules, freeing up use of the negotiated procedure still further and removing some of the more onerous procedural obligations on contracting authorities

A ‘no deal’ Brexit would create a range of potential uncertainties in relation to public procurement, including the jurisdiction of the Court of Justice in procurement disputes.

How will the UK’s accession to the World Trade Organization Government Procurement Agreement impact UK public procurement in practice?

The World Trade Organization (WTO) Government Procurement Agreement (GPA) is a ‘plurilateral’ agreement, which means it is voluntary for WTO members to accede to it. It is formed of two sections, being the GPA (which sets out the obligations to open up public procurement markets and to ensure base levels of transparency) and the Coverage Schedules which set out the parties’ market access commitments. The GPA will only apply to the relevant parts of the member’s economy listed in the country’s schedules.

There is unlikely to be significant immediate impact from the UK’s accession to the GPA. The EU is a member of the GPA and all Member States take advantage of it via their EU membership. The EU public procurement rules embody many of the principles of the WTO GPA but develop these rules in many areas. It is possible that, in due course, the UK makes a policy decision to reform its public procurement rules to align these further with the WTO GPA as part of an overall simplification programme.

How will Brexit impact procurement disputes and the relevance of EU procurement case law in the UK? 

There are detailed remedies rules in all of the public procurement directives and their corresponding regulations in the UK. These remedies rules have been developed by extensive case law from both the EU and the UK courts.

In the event of a managed withdrawal, the current rules would apply until the end of any transition period. In the event of a ‘no deal’ Brexit, there are a range of potential outcomes, but the starting position is that the EU case law would be persuasive on the UK courts and the Court of Justice would cease to maintain its jurisdiction over the UK. In practice, it may be that the EU would require jurisdiction of the Court of Justice in relation to previous procurement processes started or completed before the exit day. There is a very wide range of potential impacts of a no deal Brexit, from enforceability of overseas judgments through to the jurisdiction of the European courts, which would need to be addressed.

How does Brexit impact the drafting of public contracts? What guidance is available for contracting authorities drafting contracts for tender eg using the Model Services Contract as a guide?

Many contracting authorities (and suppliers) are making changes to their template public contracts in light of Brexit uncertainty. These changes are being made to tender documents –for example, to confirm that the procurement will continue regardless of the Brexit negotiations—as well as template contract terms and conditions. These changes include provisions to manage the risk of adverse changes in law affecting delivery of the contract, carving out Brexit as a force majeure event or seeking to limit the contractor’s ability to increase prices due to Brexit. There is no ‘one size fits all’ for such provisions and each should be assessed on a case by case basis.

What can lawyers and contracting authorities do to prepare? Is Brexit delaying procurement planning and contract award decisions?

Brexit-related uncertainty in the sphere of public procurement does not appear to be affecting procurement processes in the UK, aside from a general reduction in public spending which has been seen in recent years. As Brexit draws closer, it is possible that public bodies delay significant procurement decisions until after the exit date to ensure legal certainty and the possibility of two different regulatory regimes applying to their procurements.

What guidance is available from the UK government and the European Commission for contracting authorities preparing for Brexit?

There is a wide range of information available from both the UK and EU in relation to Brexit preparedness and considerable commentary available on the impact on public procurement.